Travel expenses and agency workers

Employment agency, Reed, has lost its appeal against a tax assessment for £158 million in respect of its expenses scheme for ’employed temps’.

The case concerned the tax treatment of temporary worker’s travel expenses. Expenses could be paid tax free to temps in respect of travel costs to locations other than their normal place of work. Under the temp contracts with Reed, their ‘normal’ work location was specified. When the temps were assigned to other workplaces they were paid travel expenses tax free.

However, HMRC challenged whether these other places of work were temporary. If the payments were in respect of the temps travelling to their normal place of work, it was taxable as employee earnings.

The key issue was whether each assignment should be looked at in isolation or whether the contractual arrangement with Reeds amounted to an overarching employment contract that continued in effect between assignments. The Upper Tax Tribunal has now held there was no continuing contract of employment between assignments. Therefore each assignment was a separate contract of employment.

The key finding was that there was not an ‘irreducible minimum of obligation’ between the parties during the periods between assignments. In particular, there was no obligation to provide work for the temp or to pay them. At best there was an obligation to try and find work. Neither was there control over the employed temp when not on an assignment as it was possible that they could be working for another employer during that time.

As each assignment was a separate contract of employment, travel to the place of work was just ordinary commuting to their normal place of work and any travel ‘expenses’ were in reality pay which was subject to PAYE.

This highlights the risk to agencies even in situations where HMRC has, as in this case, initially approved the travel scheme. Contractual wording is important, and the reality of the arrangements will need to be kept under review in order to assess whether there is an ongoing contract between assignments under which there are mutual obligations between worker and employer.